FORMATION OF HOAs - PERSPECTIVES

[OMS]

Hello everyone,

I would like to share some perspectives around the formation of HOA’s
that may put matters into realistic perspective in the hope that we
can minimise “emotion” and put in place SMART objectives to move
forward. In particular, I am very concerned about emotional and
aggressive responses from owners in regard to increases in service
charges and how such charges are calculated, apportioned and approved.
Such responses are not productive and will weaken rather than
strengthen the relationship of owners to EMAAR and the government.

UAE Environment

ALL expatriate property investors in Dubai took calculated risks when
making their property investments. We ALL knew that there was ZERO
legislation to protect our interests, yet we invested. The move to
allow foreign investors to enter the property market is less than 10
years old and since then the government has and is doing its best to
put in place the relevant laws relating to such investment. I have
lived in Dubai since 1985 and I think I have an idea about how things
evolve in the UAE. Over the last few years the government has formed
many new agencies to manage the economic and material development of
the country (Telecoms Regulatory Authority, Real Estate Regulatory
Authority, Roads and Transport Authority, etc.). Each of these new
entities is working from a blank sheet, with no history or experience
to rely on. Further to this the Dubai authorities must lobby and align
to the Federal Government (Abu Dhabi) which often has a different
agenda and has enormous leverage over Dubai, (case in point the repeal
of the property investor residence visa). Add to this that each
government entity is far from efficient and effective and we now begin
to get an idea of the situation.

Speaking to EMAAR about RERA I have now come to understand some of the
challenges EMAAR (and we the owners) face going forward. Just as an
example the number of people responsible in RERA to oversee the
development of some 2000+ HOAs across the Emirate are TWO. Yes just
TWO people in RERA have the task of reviewing and approving the plans
and other details relating to HOA formation. EMAAR have submitted
several HOA formation plans for review and approval by RERA some eight
months ago for which they are still waiting a response from RERA!

Now to this you have to add the issue that each newly formed
government entity is “knocking heads” with the other entities. For
example RERA and RTA over whether the HOA or RTA has responsibility
over major roads in the development. Or between DM & TRA over the
positioning of microwave antenna’s in developments. I can provide you
with many more cases of such conflicts, that primarily arise from the
unclear scope of operations and the associated authority of each newly
established government entity.

In the “pecking order” within this environment the foreign property
investor is at the bottom.

Developers

The opening up of the real estate market in Dubai was like the North
American “Gold Rush” of the 19th Century…”a mad free for all!”
Following this “ZERO legislation, anything goes, party” we are now
experiencing the hangover. The less reputable developers have either
fled (with investor money) or shut up shop. Luckily we have invested
with EMAAR, the biggest, best managed and most reputable of developers
in the UAE, if not the region. Still significantly government owned,
EMAAR is one of the crown jewels of the Dubai government. If you try
to cross EMAAR you are crossing the Dubai Government! This has both
positive and negative consequences to the property owner. On the
positive side EMAAR has considerable influence with the Dubai
Government, a BIG plus when such influence is applied to the benefit
of owners. On the negative side EMAAR, as a profit driven entity, will
seek to protect its interests where it can and this in some instances
may not be beneficial to owners.

EMAAR fully realise (more so than RERA and the other government
agencies) the enormity of the task ahead in forming and managing HOAs.
They have been managing their developments for many years now and have
developed systems and processes at a very fast rate over the last few
years. How many of you remember the porta-cabin that was the EMAAR
office at the time of purchase of the first Meadows properties, with
property sales contracts in piles on the floor! They have definitely
come a long way in only 10 years!

Looking to the future EMAAR fully realise that they will only succeed
if the HOAs succeed and that their business model over the coming
years will rely less on investing into new developments as opposed to
managing existing developments, where the HOAs are their customers.
Once the HOAs are formed the attitude, responsiveness and focus on
customer satisfaction from EMAAR will dramatically increase…it has to!

Property Owners

Unfortunately, the majority of property owners in Dubai are
speculators, who entered the market to make a “quick buck”. Now they
are stuck owning properties that are a liability rather than an asset.
To them their strategy moving forward is to gain the maximum from the
investment, until such time as they can divest it. This means maximise
rental income and reduce costs. These speculators are, in large part,
not resident in the properties they have purchased and do not care
about the long term quality and positive development of the community.
All they care about is to minimise the costs of ownership of their
properties…hence lower service charges!

The few “non-speculator” owners who actually care passionately about
the future of the communities are those resident owners, who in large
part have a long term commitment to living in the community and care
about enhancing the value and quality of the community for its
residents. It is however unfortunate that they are in the minority.

We are however lucky in that EMAAR is one of the developers that has
ensured that it controls the chain of ownership of the properties in
its development. There are non-EMAAR developments where the developer
no longer knows who a property owner is as the property was “flipped”
several times, with the developer losing the chain of ownership, as
the property is still not registered with the land department!

Service Charges

The single biggest challenge to this issue is the fact that the HOAs
are still not formed. Service charges (once the total cost of the
management of a development are determined) are apportioned across the
constituent owners (residential and commercial). If the plans defining
ownership of the relevant areas within the development and their
associated costs have not been clearly defined/approved (remember RERA
have only TWO people responsible for this) then there may be a
probability that some parties are over-paying and others underpaying.
From my discussions with EMAAR I find that they appear to be doing
their best to fairly apportion charges across all constituent owners.
For example in the Burj Khalifa / Downtown / Old Town development 65%
of the master community levy is borne by EMAAR Malls (Dubai Malls),
EMAAR Hospitality (Palace and Address Hotels), etc. and 35% is charged
to property owners (across ALL properties, including those still being
developed, for which EMAAR Properties bears the cost). On the surface
this seems logical and fair. Can we as owners, at this point, with no
active legal HOA, challenge it or oppose it…No!

Given that all increases in service charges MUST be approved by RERA,
the lack of transparency and feedback from EMAAR may not be solely
their fault as they await slow feedback and approval from RERA.

• Will RERA have the time and resources to analyse in detail every
service charge budget submitted?…They are trying, but I doubt it.
• Will there be inequities/mistakes?…probably yes.
• Will there be progress in ensuring that service charges are managed
correctly and apportioned justly across all the constituents of a
development?…yes, but this will be slow and may take several years to
get to the point where all can feel satisfied. I think we will be
lucky IF by year end we have working HOAs. You then will need 6 months
to a year to fully review all detailed budgets, so I think we will be
looking at the 2013 budget being set fully by the HOA with confidence
that all issues have been correctly addressed and fairly apportioned
across all constituents. I hope my estimates are on the pessimistic
side…I like to plan for the worst and work for the best.
Until such time that the HOAs are in full control of the management of
the developments, sending aggressive, demanding and, in some cases,
abusive emails to EMAAR by the owners serves no purpose and in fact is
detrimental to the interests of the owners. At this point we need to
engage EMAAR and RERA positively such that we have their full
cooperation in the formation of the HOAs. Once the HOAs are formed and
active we the owners are in FULL control. Yes, we MUST be assertive in
presenting our case and defending owners interests, but emails that
accuse EMAAR and/or RERA of wrongdoing when it comes to setting
service charges are inappropriate and will not progress the formation
of HOAs, which at this point is the overriding priority.
In addition, the action by owners to withhold payment of service
charges, as a demonstration of owner disapproval on how the charges
are set, is also counterproductive. It will increase the financial
deficits that the developers will pass onto the HOAs and in turn have
a knock on effect of increasing subsequent service charges.
I am an interim member of more than one interim HOA. I can see that
unless the interim HOAs “educate” owners as to the reality of the
situation (hopefully with the support of responsible developers) the
HOAs themselves will become the target of dissatisfaction by the
owners. Too many owners like to shout and yell about the injustice and
extortionate rates in regard to service charges, yet when invited to
actually participate in the HOAs to better the community they are
silent. If an HOA is to be successful it must not only focus on
presenting the viewpoint of the owners to the developer and RERA, but
also to inform and educate the owners on the reality within which we
find ourselves and seek their cooperation and active participation in
support of the HOA and community interests.
At this point we need to campaign to accelerate HOA formation and HOA
effectiveness, before we can effectively campaign about reducing
service charges.

Most owners only recently invested in Dubai property, knowing there
was no legislation to protect them. To expect that, over this short
period of time, the government now has in place a comprehensive,
robust and fair legal framework that protects owner interests and
ensures fair and transparent property management for all concerned
parties is both naïve and unrealistic.

In addition to determination and passion, understanding the big
picture and pragmatism need to be applied.

Kind Regards,
Omar Shamma